Were prosthetic devices sold by an out-of-state supplier to South Carolina hospitals, clinics, and doctors exempt as devices sold by prescription?

Plain-English summary

South Carolina Private Letter Ruling 88-22 held that an out-of-state supplier's prosthetic-device sales to South Carolina hospitals, clinics, and doctors were subject to use tax.

The healthcare providers were treated as the consumers of devices used in furnishing medical services to patients. They did not acquire the devices through patient prescriptions.

The exemption for prosthetic devices "sold by prescription" therefore did not apply. Under the Commission's stated policy, that exemption required a direct sale to the patient or customer.

ABC's sales

ABC Company was located outside South Carolina and sold prosthetic devices to hospitals, doctors, and clinics in the state.

Customers placed orders by telephone or mail, and ABC delivered the devices through the U.S. Postal Service or a common carrier.

ABC was authorized to collect South Carolina use tax.

Healthcare providers were the consumers

Section 12-35-110 treated hospitals, infirmaries, sanitariums, nursing homes, and similar institutions as users or consumers of drugs, prosthetic devices, and other supplies furnished to patients as part of medical services.

Regulation 117-166 said those institutions primarily rendered services. Their charges to patients were not taxable retail sales of the medical items, even when separately billed. Instead, the institution owed tax when it purchased the items, including reporting use tax on out-of-state purchases.

Regulation 117-174.161 similarly treated doctors as consumers of the supplies, medicines, furniture, fixtures, special tools, and equipment used in their practices. Sales of those items to doctors were retail sales subject to tax.

The regulation recognized a different rule only when a doctor maintained drug inventory and made numerous and substantial retail sales.

Why the prescription exemption did not apply

Section 12-35-550(31) exempted medicine and prosthetic devices sold by prescription.

The Commission read that exemption as applying when the medicine or device was sold directly to the patient or customer by prescription. A hospital, clinic, or doctor buying devices for use in providing services did not acquire them by prescription.

The ruling cited Commission Decision S-D-155, which denied the exemption to a clinic furnishing medicines and devices as part of medical or dental services because the clinic itself had not acquired them by prescription.

It also cited Revenue Ruling 88-9, which treated dentists' purchases of prosthetic devices from out-of-state dental laboratories as taxable rather than devices sold by prescription.

What this means for you

Prosthetic-device and medical-supply sellers

PLR 88-22 distinguished sales to providers from direct prescription sales to patients. A provider purchase was taxable even if the device ultimately was used for a patient.

Hospitals and clinics

Institutions were consumers of devices furnished as part of their medical services. They owed use tax on out-of-state purchases under the ruling's framework.

Doctors

Doctors were consumers of supplies and equipment used in practice unless they maintained stock for numerous and substantial retail drug sales under the cited regulation.

Healthcare accounting teams

Separate billing to a patient did not change an institution's consumer status under Regulation 117-166.

Readers applying the ruling today

PLR 88-22 applied 1988 healthcare-provider and prescription exemptions. Current prosthetic-device definitions, prescription requirements, provider exemptions, direct-pay arrangements, resale treatment, collection duties, and medical-service rules must be checked independently.

Common questions

Q: Were ABC's sales to hospitals, clinics, and doctors exempt?

A: No. The sales were subject to use tax.

Q: Why were the providers treated as consumers?

A: They used the devices in rendering medical services rather than reselling them as ordinary retailers.

Q: Did the prescription exemption cover a provider's purchase for a patient?

A: No under the ruling. The Commission required the device to be sold by prescription directly to the patient or customer.

Q: Did separate billing to a patient make the device a retail sale by the hospital?

A: No. Regulation 117-166 treated the hospital as the consumer regardless of separate patient billing.

Q: Could a doctor ever be treated as a retailer of drugs?

A: The cited regulation said a doctor with stock used for numerous and substantial retail drug sales had to hold a retail license and remit sales tax.

Q: Can another supplier or provider rely on PLR 88-22?

A: No. The ruling states that it applied only to ABC's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-810 (1976) — use tax
• S.C. Code section 12-35-110 (Supp. 1987) — healthcare institutions as users or consumers
• S.C. Code section 12-35-550(31) (Supp. 1987) — medicine and prosthetic devices sold by prescription
• S.C. Code section 12-35-515 (Supp. 1987) — additional one-percent tax cited in the ruling
• S.C. Regulations 117-166 and 117-174.161 — healthcare institutions and doctors as consumers
• South Carolina Tax Commission Decision S-D-155 and SC Revenue Ruling 88-9 — provider purchases not sold by prescription, cited in the ruling
• Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d 435 (1966), and Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60 S.E.2d 682 (1950) — longstanding administrative interpretation
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-22.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-22

TO:

ABC Company

SUBJECT:

Prosthetic Devices Sold to Hospitals, Clinics & Doctors
(Sales and Use Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-110 (Supp. 1987)
S.C. Code Ann. Section 12-35-550(31) (Supp. 1987)
S.C. Code Ann. Section 12-35-515 (Supp. 1987)
S.C. Regulation 117-166
S.C. Regulation 117-174.161

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential value
and are not intended for general distribution.

Question:
Are sales of prosthetic devices by ABC Company to hospitals, clinics and doctors subject to the
State's use tax, pursuant to Code Section 12-35-810?
Facts:
ABC Company of another state sells prosthetic devices to hospitals, doctors and clinics located
in this State. Such customers will either telephone or mail their purchase orders to ABC and
receive the prosthetic devices via the U.S. Postal Service or a common carrier. ABC Company is
an authorized collector of the State's use tax.
Discussion:
Code Section 12-35-810 imposes the use tax and reads, in part:
An excise tax is imposed on the storage, use or other consumption in this State of
tangible personal property purchased at retail for storage, use or other consumption in this
State, at the rate of four percent of the sales price of such property, regardless of whether
the retailer is or is not engaged in business in this State.

Code Section 12-35-515 imposes an additional one percent tax.
Code Section 12-35-110 reads, in part:
Where drugs, prosthetic devices and other supplies are furnished by hospitals,
infirmaries, sanitariums, nursing homes and like institutions to their patients as a part of
the service rendered, such hospitals, infirmaries, sanitariums, nursing homes and like
institutions are deemed to be the users or consumers of such drugs, prosthetic devices and
other supplies.
Regulation 117-166 reads, in part:
Hospitals, infirmaries, sanitariums, nursing homes and like institutions are engaged
primarily in the business of rendering services. They are not liable for the sales tax with
respect to their gross proceeds or receipts from meals, bandages, dressings, drugs, x-ray
photographs and other tangible personal property where such property is used in the
rendering of the primary medical service to patients. This is true irrespective of whether
or not such tangible items are billed separately to their patients. Hospitals, infirmaries,
sanitariums, nursing homes and like institutions are deemed to be the users or consumers
of such tangible personal property and the instate sellers of these items are required to
report and remit the tax due on the sale of such property to the hospitals, infirmaries,
sanitariums, nursing homes, and like institutions or in the case of out-of-state purchases,
use tax shall be reported and remitted by the purchaser.
This regulation also paraphrases the above-cited portion of Code Section 12-35-110.
Regulation 117-174.161 reads:
Doctors are the consumers of the supplies, medicines, office furniture and fixtures and
special tools and equipment they use in the practice of their profession. Sales of such
supplies and equipment to doctors are retail sales and subject to the tax.
It is only when a doctor has a stock of drugs from which he makes numerous and
substantial retail sales that he is required to have a retail license and to remit sales tax
directly to the Tax Commission.
In summary, sales of prosthetic devices to hospitals, clinics and doctors are sales to the
consumer. However, a review of this issue requires a discussion of Code Section 12-35-550(31).
That section exempts from the sales and use tax the "[g]ross proceeds from the sale of medicine
and prosthetic devices, sold by prescription."
Commission Decision S-D-155 concerns the issue in question with respect to a health clinic
which furnished drugs and prosthetic devices "to their patients as a part of the medical and/or
dental services rendered." The taxpayer contended they were a retailer and entitled to the
exemption under Code Section 12-35-550(31). The Division contended the sales were taxable

pursuant to Code Section 12-35-110. The Commission held that "the exemption found at
[Section] 12-35-550(31) allows an exemption for the retail sale of medicine and prosthetic
devices, sold by prescription. The taxpayer did not acquire the medicines here by prescription.
Hence, on its face, the exemption does not apply." (emphasis added)
Furthermore, in Revenue Ruling #88-9 dated June 1, 1988, the Commission held that "[t]he
purchases of prosthetic devices by dentists from out-of-state dental labs do not
constitute.....prosthetic devices, sold by prescriptions and are therefore subject to the use tax...."
It has been the long-standing administrative policy of the Commission that medicine and
prosthetic devices cannot be "sold by prescription" to an institution or a physician. Such can
only be "sold by a prescription" when sold directly to a patient or customer. When the
administrative interpretation of a statute has been applied for a number of years and has not been
changed by the legislature, there is created a strong presumption that such interpretation is
correct. Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 SC 148, 149 S.E. 2d
435 (1966). In Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60
S.E. 2d 682 (1950), the Supreme Court of South Carolina held that "where the construction of
the statute has been uniform for many years in administrative practice, and has been acquiesced
in by the General Assembly for a long period of time, such construction is entitled to weight, and
should not be overruled without cogent reasons." (emphasis added)
Conclusion:
The sale of prosthetic devices to hospitals, clinics and doctors do not constitute "...prosthetic
devices, sold by prescriptions,..." The sales in question are therefore subject to the State's use
tax, pursuant to Code Section 12-35-810.

SOUTH CAROLINA TAX COMMISSION

S. Hunter Howard, Jr., Chairman

A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
October 26,

1988